@curious4913 , instead of answering point by point, I will try covering the general areas of questions and see if that covers everything you talked about:
(a) For a tax preparer to prepare a return for another ( for money ), he/she must be able to verify the identity of the taxpayer --- thus the need for presence and driver's license / passport etc. If the taxpayer is not present or cannot be present, it puts the prepare at a difficult situation but not impossible. I have prepared returns for clients for years -- I needed their driver's license, their signature on form, talk to them directly to verify and more importantly I came to know them through somebody whom I knew by face. If you vouchsafe for the lady in India, a preparer may be willing to prepare, print out the whole thing and let the taxpayer sign/date and file --- the preparer will still have to sign and therefore must have enough confidence that this is not a fraudulent return. The penalties can be quite still for the preparer. Since you now her , you can prepare for her, send the docs to her in India and let her sign/date, then you or she can mail these to the IRS and the state ( ?);
(b) the TurboTax you will need is higher than the free version because of foreign earnings and foreign tax credit. Personally I prefer to use downloaded/ CD version of Home & Business -- this covers all situations and it is left on my machine.
(c) For Interest and dividend reporting, it is strongly recommended ( esp. since you will not have any information returns --- like 1099-INT or 1099-DIV--- provided to the IRS ) that you enter each bank name/ and amount line by line -- this is tedious but it creates a good paper-trail if challenged.
(d) For gains for sale of stocks/bonds, it is mandatory to enter each stock name, number of shares, etc. in detail -- else IRS may assume the transaction is short term and the basis is ZERO. While Indian banks / financial institutions have started sharing data with IRS / treasury for all US citizens, there may not be enough detail and in time --- so it is best that you have proper records and enter as much detail as possible.
(e) Because she is a US citizen ( and even for Green Card holders ) , one must file using form 1040 and NOT 1040-NR. She is a resident / citizen of USA even if her tax home is abroad.
(f) for form 1116, you just need gross foreign income and amounts paid to each foreign country - no more detail is required.
(g) Note that foreign tax credit can only reduce one US tax liability not more. Thus if her US tax liability before foreign tax credit is only $200, then her foreign tax credit be at most $200, assuming that all her income is foreign . In her case , because she also had US income, it will probably be less. The rest of the foreign tax credit is "suspended" i.e. carried over to the next year for use. That is why I had hinted earlier that depending on facts and circumstances, the taxes paid to India may be a lost cause. In your particular case you have to work out and see if this is worth it.
(h) when you enter the interest income -- think one of the boxes allows you to put the amount under foreign category. If you cannot find it , don't worry. The tax treatment is same --- just have to enter the income on form 1116 to make sure it is binned correctly. Same thing applies to stock sales --- you have to remember that this foreign income for purposes of form 1116.
I think I have answered all the questions you had raised.
Namaste
pk
